Pay 40% tax or not?

twicebittennotshy

Apologies if this a silly question, but as someone who has only ever paid the basic rate of income tax I don't really understand taxation very well.

My question is this: My employer is introducing a new bonus scheme which, if it pays as expected, will push me about £1000 - 2000 into the 40% tax bracket. As I have no other income, negligible savings, no investments, no tax credits etc., am I better off being pushed into the 40% bracket and getting the higher rate of tax relief on my pension contributions, or should I look to use salary sacrifice to increase my pension contributions and/or make a purchase on the cycle to work scheme (I am a keen cyclist anyway) in order to stay under the 40% threshold?

Thanks in advance for your thoughts.

P.s. - apologies is this isn't the correct topic board to post this question.

JCS1

It's only anything above the threshold you pay at 40%, so you will still be better off

Brynsam

Salary sacrifice will give you an NI saving, so if your employer offers that facility to make your pension contributions, seems a sensible thing to do, particularly as you have little else to fall back on in retirement.

Just one small consideration: do you have a 'rainy day' fund if you suddenly find yourself out of work? If not, perhaps create one before you pay more into a pension scheme you can't access until you are at least 55.

Me2you

An extra £800 paid in tax and £1200 earned?

Kynthia

It's up to you. As you say you can:
Keep 60% of the extra money.
Put money into your work pension, and have more go in than you lose in your take home pay.
Get a bike through the cycle to work scheme.

They are all very different options and are very much down to personal choice. Do you want a bike, do you want the extra cash or are you happy to lock your money away and have more of it for your future. The only thing I'll say is if your work pension is salary sacrifice and reduces your NI then it beats a private pension.